Iceland secures €200m from Norway, Denmark

publication date: Oct 15, 2008

As shares on the Icelandic Stock Exchange sink, Icelandic officials have begun talks with Russia about a €4billion loan. Iceland secured €200 million (£156 million) from Norway and Denmark yesterday as it sought help to stabilise its stricken economy, but talks to secure a far larger loan from Russia continued.

It also emerged yesterday that the country, which has been forced to nationalise its banking sector, is only one of several asking the International Monetary Fund (IMF) for financial assistance. According to reports, Hungary, Ukraine and Serbia have signalled that they need help, too.

The IMF issued a statement saying that it was in close dialogue with the Hungarian authorities as they respond to the turmoil in global markets, although formal financial support remains a last-ditch measure and the statement is aimed more at restoring confidence to a battered bond market.

In Reykjavik, where the crisis is deepest, shares on the local stock exchange sank after they resumed trading after three days of closure. The main financial stocks remain halted.

Icelandic officials, meanwhile, began talks in Moscow over a €4 billion loan to help the country’s financial sector. The head of the Icelandic delegation said that there had been no discussion so far on a loan amount from Russia to Iceland, but the group had received an “excellent reception”. However, the party does not include any ministers or the Icelandic central bank’s chief, suggesting that negotiations have some way to go before politicians become involved.

Britain has also offered to lend up to £100 million to Landsbanki, one of three banks taken over by the Icelandic Government, to help to facilitate prompt compensation for British savers whose money has been trapped in the administration of Icesave, the country’s internet bank.

There is confusion over what will happen to Baugur, the Icelandic investment group that owns a swath of the British high street, from Hamleys to House of Fraser. The Icelandic Government is still thought to be in negotiations to sell Baugur’s frozen bank debt to Sir Philip Green, the Topshop billionaire, although last night he told The Times: “I’m still waiting.”

TPG, the private equity firm, is also circling Baugur and is believed to have told the Icelandic Government that it is interested in acquiring the company’s debt, which is owed to the country’s struggling banks. TPG executives were understood to have been in Reykjavik yesterday for talks.

Baugur insisted yesterday that it was not on the verge of appointing BDO Stoy Hayward as an administrator, despite reports of talks between the two. Gunnar Sigurdsson, Baugur’s chief executive, said: “Further to media speculation, we would like to make clear that Baugur has not appointed any advisers. We continue to monitor the situation in Iceland, where possible maintain a dialogue with the banks and manage and plan our business accordingly.”

Iceland has turned to Russia for help, where a €4 billion loan would be worth about 1 per cent of Russia’s gold and foreign exchange reserves. Russia’s move is widely seen as being politically motivated. Last week, Iceland said that the loan could be for between three and four years.